Weekly Update: Hot CPI Reading Sends Stocks South
The market fell apart this week, with the Nasdaq 100 and S&P 500 each tumbling roughly 5%.
This was the worst week for stocks since January.
The catalyst? Inflation.
Consumer Price Index (CPI) numbers showed another record level for inflation on Friday.
The hope was that inflation had peaked and the May numbers would show signs of improvement. But the opposite happened…
The CPI rose 8.6% in May, which was a new 40-year high. Stocks responded in kind by selling off hard.
Engineering a Recession
Investors know the Fed has no choice but to aggressively raise rates and engineer a recession in order to fight this trend.
That could mean rate hikes of as much as 0.75% or 1% at the next meeting.
For me, that means it is highly likely the market will undercut the May 20 low and send the bear market on another leg down.
As we’ve discussed, the primary areas of strength in the market over the last six months have been energy, chemical and shipping stocks.
These sectors have made up the majority of our trade ideas and the biggest winners in my Alpha Stocks service.
But even these pockets of strength fell apart last week…
Eagle Bulk Shipping Inc. (EGLE) fell 15.7% on the week, while ZIM Integrated Shipping Services Ltd. (ZIM), another leader throughout the year, dropped 22.3%.
CF Industries Holdings, Inc. (CF), Genco Shipping & Trading Limited (GNK), Dow Inc. (DOW) and dozens of other top-performers all broke down below their pivot levels and undercut their 50-day moving averages.
For the time being, there seems to be nowhere to hide in this bloodbath.
Join Me on Monday
Bonds are down. Stocks are down. Digital currencies are down. Even gold, which typically rises during times of crisis, cannot seem to mount a rally.
I have been trading for over 15 years, and this is probably the most difficult environment I have ever seen.
Many traders I talk to are choosing to go to cash and sit out until things calm down.
But I am expecting lower prices and more downside in the markets.
With that in mind, I hope you’ll join me on Monday afternoon for our live Stealth Trades session at 3:00 p.m. ET…
I’m going to be outlining our plan for dealing with a market environment like this.
We’ll talk about inflation and how it is impacting the markets we track, and we’ll take a look at our Watchlist stocks and other potential ideas in more detail.
So again, please join me right here Monday at 3:00 p.m. ET!
Now, here are the three new short ideas I’m watching this week…
Grayscale Bitcoin Trust (Short Idea)
The Grayscale Bitcoin Trust (GBTC) is an exchange-traded fund that gives investors access to Bitcoin in the form of a security.
It trades like a stock and can be bought in any traditional brokerage account, so you don’t have to go through a digital currency exchange to trade it.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 16/100
- % Above 52-wk low: 9%
- Sales growth: N/A
- Return on Equity: N/A
- Triple momentum: yes (short)
There was long-term support near the $24 area, which broke in early May.
Since breaching this level, GBTC cannot seem to rally and has formed a shelf over the last several weeks.
Traders may consider selling short here or once GBTC breaks below the $18.80 level. I would place a buy stop at $21.00 for protection.
Green Brick Partners, Inc. (Short Idea)
Green Brick Partners, Inc. (GRBK) is a residential homebuilder, and the stock looks ripe for another move lower.
Homebuilders saw huge profits in 2020 and 2021 thanks to a construction boom and rapidly rising home prices. But the party is coming to an end.
Interest rates have more than doubled over the last six months, and the country is on the verge of recession.
With rates expected to rise even further, it is hard to imagine this not ending in collapsing home prices and a serious slowdown in construction.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 75/100
- % Above 52-wk low: 22%
- Sales growth: +68%
- Return on Equity: 25%
- Triple momentum: no
GRBK has traded below its 200-day moving average (white line) since January.
Shares rallied back in the second quarter but are now failing and rolling over.
Traders could take a short position in the stock here with a buy stop above the swing high at $25.05 to risk 9% on the trade.
Skechers U.S.A., Inc. (Short Idea)
Since going public in 1999, Skechers U.S.A., Inc. (SKX) stock has regularly seen huge swings in both directions.
It mounts powerful rallies and suffers crippling falls. But if you can catch it at a turning point, the profits can be large.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 71/100
- % Above 52-wk low: 17%
- Sales growth: +27%
- Return on Equity: 14%
- Triple momentum: yes (short)
SKX has been trending lower for almost a year with a series of lower lows and lower highs.
The stock rallied 25% off the May lows right into the dotted downtrend line and its 200-day moving average.
This is a low-risk area to try a short trade. Traders can place a buy stop on the other side of the 200-day line at $43.00 for protection. The risk is just under 7%.
Finding Real Alpha
With the major indexes down double-digits and many of last year’s leading stocks down over 50%, consider checking out my Alpha Stocks trading service.
We just scored a serious gain in Permian Basin Royalty Trust (PBT) in a little over two weeks.
We also recently recorded a huge winning trade on the downside in only eight days as Pegasystems Inc. (PEGA) stock plunged last month…
Alpha Stocks also provides option alternatives if that’s more of your style.
And we get together every Monday for an hour-long live session so that subscribers can ask questions and get guidance about our trades.
Live Coaching Session
Monday, at 3:00 p.m. EDT, we’ll be hosting our regular weekly coaching session for Stealth Trades.
We’ll send you a login reminder that morning, just so you don’t forget.
We’ll cover all of our new stocks on the Watchlist as well as the rest of the stocks inside Stealth Trades.
You need to attend this session to get the most from your subscription!
In the meantime, you can watch the replay of our latest Stealth Trades session right here.
Best wishes for your trading,
Ross Givens
Editor, Stealth Trades
P.S. If you’re ready to see what you could be missing out on, click here to learn more about Alpha Stocks now!